Reality check for anyone who earns a salary in South Africa
Salaries in South Africa are taking a beating, and it’s because annual salary increases follow a CPI basket that doesn’t reflect the real inflation rate faced by different income levels.
This is according to Chris Blair, Group Director at remuneration and HR analytics firm 21st Century, who noted that South Africans are increasingly feeling their salaries fall behind the cost of living.
“There is absolutely no doubt that South Africans are feeling the squeeze, and although wages are rising, they are nowhere near fast enough to keep up with the cost of living,” he said.
Blair explained that electricity tariffs, food prices, and transport costs are climbing far faster than most annual wage increases.
He noted that the problem stems from the fact that we have a CPI that’s measured using a basket of goods, and the majority of workers’ baskets of goods do not match that CPI basket.
The official consumer price index may sit around 3.6%, but for everyday essentials such as electricity, fuel, cereals or basic food goods, inflation is far higher. “They’re probably more between 10% and 15%,” he noted.
This mismatch leaves lower-income earners the most exposed. Many spend almost all their money on the essentials, where inflation is hottest, meaning the real cost of living climbs far faster than their wages.
“If the effective CPI is 10% and the salary increase is 6%, they’re going backwards by 4% every year,” Blair said.
For households already struggling with stagnant growth and rising debt, that erosion is severe.
Asked which income groups are suffering the biggest losses in purchasing power, Blair said it is definitely the lower-income groups, pointing to entry-level and unskilled workers whose personal inflation rates are far above the national average.
Even slightly higher wage brackets are beginning to feel real strain. Middle-income earners are somewhat cushioned because their spending patterns more closely match the CPI basket, but they are not immune.
Changes in how salary increases are formulated are needed
Blair added that higher-income households are also feeling squeezed because they pay for private schools, private medical aid, and all of those things have a very high inflation rate relative to the CPI basket.
Rising living costs are also weakening workers’ bargaining power. Blair noted that huge unemployment in the country leaves low-skilled workers competing against a large pool of job seekers.
Without strong union representation, they really don’t have any leverage on the employer. Employers know that if one candidate doesn’t accept the offered wage, they will simply move on to the next person who will accept the salary.
This dynamic is reinforced by how companies determine annual increases. Blair explained that most organisations rely heavily on CPI as the anchor when setting salary adjustments, even though it misrepresents the real inflation rate faced by different income levels.
“Companies are pegging increases too tightly to headline inflation, and because CPI is based on the national basket, not the inflation rate by income level, which would be remarkably different, the increases simply don’t keep up,” he said.
While lower-level workers may receive slightly higher increases than executives, Blair noted that the difference is not enough. “It’s still not keeping you ahead in terms of the erosion of your salary each year.”
Reforming this approach is not straightforward. Blair explained that CPI-linked adjustments are deeply ingrained in corporate salary structures.
“It’s been used for so long, even though some companies have begun exploring inflation rates tailored to income levels or adopting a living-wage strategy,” he said.
These efforts could help if applied consistently. “That is a changing trend, which hopefully will help the low-level employees if companies do adopt that as a strategy and keep it going for a number of years.”
Productivity-linked pay is one tool companies already use, but it also has limitations. While high performers can earn more, Blair said that performance systems are structured on a bell curve.
“The CPI is the anchor point, and if you get a high performance rating… you get a higher increase.”
But because ratings are split, half the people are getting poorer and half the people are getting less poorer.
Until companies and policymakers begin aligning increases with the true cost of living, he warned that salaries in South Africa will continue to fall behind.
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